Monday, August 31, 2015

Interpretting the fear priced into oil prices

Pick your price as to where crude oil may be headed, but any damage to the wider economy is tied to how long the price remains above $100 a barrel.

Interpretting the fear priced into oil prices

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Oil experts this week seem to be tripping over themselves to offer dire predictions of where the price of a barrel of oil is headed.

Nomura Holdings Inc. analysts said they expect $220 a barrel if production is disrupted further in Libya and Algeria. Someone else burped up $300 to $400 a barrel.

Prediction is a fool’s game for reporters, so don’t look for one here. But recognize that such high estimates represent Armageddon-style planning. (How many Americans still have duct tape and bottled water in their basement?)

In fact, the U.S. economy has been doing “fine” with oil in the $80 to $90 a barrel range, if you consider 9 percent unemployment and a zero-percent interest rate policy fine. So if this is a temporary blip on the Energy Fear-O-Meter, don’t worry and keep planning that RV roadtrip to Yosemite for this summer.

However, if we have begun a sustained march above $100 a barrel for crude oil that lasts for months, the U.S. economy would likely be headed for a slowdown.

Consumers instinctively pull back when gas prices hit $4 a gallon. We saw it during the summer of 2008. Let’s hope we don’t see it in the summer of 2011.

Inquirer Columnist
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About this blog
Mike Armstrong blogs about Philadelphia corporations and business-related topics. Contact him at 215-854-2980. Reach Mike at marmstrong@phillynews.com.

Mike Armstrong Inquirer Columnist
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